Business Setup in India: A Comprehensive Starter Guide

Business Setup in India: A Comprehensive Starter Guide

As one of the world’s fastest-growing economies, India offers immense opportunities for both domestic entrepreneurs and foreign businesses seeking expansion. Whether you're a domestic entrepreneur or a foreign entity looking to expand into the Indian market, understanding the process of business setup is critical. This guide will walk you through the key steps of setting up a business in India, with a special focus on some of the more complex aspects like merchant exporter benefits, Advance Authorization, FC-GPR Form, FLA Return, branch office setups, and 100% subsidiary companies.

1. Choosing the Right Business Structure

The critical first step in establishing a business in India is selecting the ideal legal structure, as this impacts liability, taxation, and compliance. Here's a breakdown of the most common structures:

• Sole Proprietorship
• Partnership
• Limited Liability Partnership (LLP)
• Private Limited Company
• One Person Company (OPC)
• Public Limited Company

For foreign entities, you may want to consider options like:

• Branch Office: A branch office can engage in trading, consulting, and exporting/importing but cannot engage in manufacturing.
• Liaison Office: A liaison office can represent the parent company, engage in communication, and gather information but cannot carry out commercial activities in India.
• 100% Subsidiary Company: A foreign company can fully own an Indian subsidiary, allowing greater flexibility and control.

Practical Tip: Private Limited Companies and LLPs are popular choices for startups due to their limited liability and operational flexibility. while foreign businesses often opt for branch offices or wholly-owned subsidiaries depending on their long-term plans.

2. Steps to Incorporation

After choosing your business structure, the next phase involves navigating the incorporation process efficiently. Below are the typical steps to follow:

• Step 1: Obtain a Digital Signature Certificate (DSC)
• Step 2: Director Identification Number (DIN)
• Step 3: Name Approval through the SPICe+ Form
• Step 4: Incorporation Documents (MOA and AOA)
• Step 5: PAN and TAN Application
• Step 6: Certificate of Incorporation
• Step 7: Opening a Corporate Bank Account

Special Focus on Foreign Direct Investment (FDI): Foreign entities must adhere to India’s Foreign Direct Investment (FDI) regulations, with compliance varying by sector. Depending on your sector, FDI may be allowed through the automatic route or require approval from the Foreign Investment Promotion Board (FIPB). For a wholly-owned subsidiary, the FC-GPR Form must be filed with the Reserve Bank of India (RBI) upon issuance of shares to the foreign entity.

Practical Tip: Foreign entities should also complete the FLA (Foreign Liabilities and Assets) Return annually, which is mandatory for companies with FDI or overseas investments.

3. Post-Incorporation Compliance

Post-incorporation, businesses are required to adhere to multiple compliance obligations, ensuring long-term operational legality. Some important post-incorporation obligations include:

• GST Registration
• Annual Return Filing
• Income Tax Filing
• Statutory Audits
• ROC Filings
• Employment Law Compliance

Special Focus on Export-Oriented Businesses

If your business is involved in exporting goods or services, there are specific benefits and compliance requirements you should be aware of:

• Merchant Exporter: If you're a merchant exporter (exporting goods you don’t manufacture), you benefit from tax exemptions under GST. Merchant exporters enjoy a concessional GST rate of 0.1% on goods procurement, significantly lowering operational costs and export without paying integrated GST (IGST).
• Advance Authorization: Exporters can apply for Advance Authorization, which allows the import of duty-free inputs for producing export products. This is especially useful for businesses dealing with raw materials that would otherwise attract high import duties.

Practical Tip: For both merchant exporters and manufacturers, understanding schemes like Advance Authorization can significantly reduce operating costs and improve profitability.

4. Foreign Currency Compliance: FC-GPR Form and FLA Return

Two key forms need to be filed by businesses with foreign investments:

• FC-GPR Form: Filed with the RBI after issuing shares to foreign investors. This is part of the reporting requirement under the FDI policy and is critical for any business receiving foreign investment.
• FLA Return: This annual return is mandatory for all Indian companies receiving foreign direct investment (FDI) or making foreign investments. It must be filed with the RBI by July 15 each year.

Failure to file these forms can result in penalties and non-compliance issues with the Reserve Bank of India.

5. Branch Office vs. Liaison Office vs. 100% Subsidiary

Foreign companies planning to establish a presence in India can choose from several setup options, each tailored to distinct business goals:

• Branch Office: Suitable for businesses engaged in activities like exporting/importing goods, consulting, and professional services. However, branch offices cannot carry out manufacturing activities independently.
• Liaison Office: This type of office serves as a channel of communication between the parent company and Indian entities. It cannot engage in commercial, trading, or industrial activities directly.
• 100% Subsidiary: A foreign company can have full ownership of an Indian subsidiary, giving it complete control over operations and decision-making. A wholly-owned subsidiary can engage in manufacturing, trading, and services without restrictions.

Practical Tip: Setting up a 100% subsidiary offers the most flexibility in terms of operations and is the most popular choice for long-term investment in India.

6. Additional Business Activities: Import-Export Code (IEC) and DGFT Schemes

For businesses engaged in international trade, securing an Import-Export Code (IEC) from the Directorate General of Foreign Trade (DGFT) is essential for regulatory compliance. This 10-digit code is required for importing goods into India or exporting goods out of India.

Businesses can also benefit from various DGFT schemes:

• MEIS (Merchandise Exports from India Scheme) and SEIS (Service Exports from India Scheme) offer incentives to exporters based on the export of goods or services.
• EPCG (Export Promotion Capital Goods) Scheme allows import of capital goods at zero customs duty, provided certain export obligations are met.

Conclusion

Starting a business in India offers tremendous potential for growth, but the process can be complex. From choosing the right business structure to ensuring compliance with FDI norms, merchant exporter benefits, and post-incorporation requirements, navigating the Indian regulatory environment is crucial for success. With a clear understanding of the steps outlined above, you can set up a strong foundation for your business and take full advantage of the opportunities in one of the world’s most dynamic markets.

Need Assistance?

Ready to establish a business in India or expand internationally? Our team of experts simplifies the entire setup process and ensures seamless compliance with India’s regulatory framework. with every aspect of business setup, compliance, and FDI regulations. Contact us today to make your entry into the Indian market seamless and successful!